AUSTRALIA is set to embark on its biggest economic reform in a generation, with a surprise last-minute twist: a Robin Hood tax reform that will make lower and many middle-income earners better off but make higher-income earners pay most of the cost of the carbon tax.
The core of the plan unveiled yesterday sounds simple. The 500 biggest greenhouse gas emitters in Australia will have to pay a tax on their emissions, starting next year at $23 a tonne. Households will be compensated generously at the bottom, not at all at the top. The firms most at risk will be given free permits. And several billion dollars will be spent to cut emissions by changing technologies.
But it's complex. Be warned: you are about to be bombarded by claim and counter-claim from all quarters. Truths, half-truths and outright lies will be difficult to tell apart.
The first complexity: within three years the carbon tax will morph into an emissions trading scheme, in which companies buy and sell emissions permits including from overseas to meet the target to reduce Australia's emissions in 2020 to 5 per cent below 2000 levels.
Second: only 500 firms will be taxed, but they will pass on their costs to their consumers. The people really paying will be us. Overall, the impact on prices will be small: a 0.7 per cent lift in consumer prices initially, and then about 0.1 per cent a year.
Third: the compensation is very uneven. If you're in the bottom half of the income range, your price rises will be outweighed by big tax cuts or benefit rises: you will be better off. If you're in the top half, the balance probably will be the reverse: most will be worse off, if only by a few dollars a week.
Those at the top the top 10 per cent according to the government, though that looks like an understatement will pay the full tax, costing roughly 1 per cent of their take-home pay.
But it's complex. Try some of the key facts.
Will it cut our emissions? If so, how much?
Yes and no. Australia now emits 582 million tonnes of greenhouse gases a year. By 2020, Treasury projects, that will rise to 679 million tonnes without a carbon tax, and 621 million tonnes with one.
Even with a carbon tax, that is, Australia's emissions will rise, to be well over our 2020 target of 530 million tonnes. To meet the target, we would have to buy 91 million tonnes of international permits, from tribes pledging to preserve rainforests or whomever, at a global price Treasury estimates by then at $37 a tonne.
Treasury estimates the carbon tax would cut our 2020 emissions by 58 million tonnes. That's a cut of 0.1 per cent of projected global emissions at that time. Only global action can end global warming; Australia's actions would be part of that.
Would Australia be out in front of any other country?
In some ways, yes. More broadly, no.
More than 30 countries already have a price on carbon, mostly through the European Union's emissions trading scheme, which up to now has been smaller than what we're planning. But its third stage, to start from 2013, will be similar in coverage, and will move gradually to auctioning permits.
But the EU scheme is targeted at electricity and transport; even in stage three, most manufacturers will get their permits free. Australia's new tax promises fewer free permits, to fewer sectors, and for only five years, with a review in 2014.
We will lead the world in taxing emissions from mining and manufacturing. By contrast, our plan will exempt petrol, agriculture, and diesel for freight (at least until 2014). It had to Tony Windsor and Rob Oakeshott helped write it but many see congestion taxes as a better option.
Who are the big winners?
Senior couples living on investment income. Treasury estimates that a couple earning $70,000 evenly divided will get $2008 in government help, even though their share of the carbon tax would be only $480.
Welfare beneficiaries, part-time workers and people in low-wage jobs all come out ahead, although most by only a few dollars a week. But a couple splitting a household income of $40,000 and supporting a teenager would get $1793 in help to pay a carbon tax of $389.
And the losers?
Some will be on ordinary incomes. Singles are treated badly again: a single earning $80,000 will get only $16 aid towards his or her carbon tax of $441. Treasury assumes the tax is proportionate to your spending, so the more you earn, the more you pay and even for families, compensation virtually cuts out at $150,000.
So you can't avoid this tax?
Yes, you can! This is a tax they want you to avoid! Its purpose is to drive change. Cut your use of things generating carbon emissions, and you get the cuts while dodging the worst of the tax.
Overall, Labor and its allies have given us a tax that will make only a modest initial impact on most households and business, and only a modest contribution to driving change and cutting emissions.
If global warming grows, both impacts will grow. If it doesn't, they won't.
